Make Your Charitable Giving Go Further at Tax Time
But as April 15 approaches, you'll want to know how your charitable giving can score you a bigger tax refund. Here's what you need to know.
Can You Deduct Donations?
The biggest obstacle for many charitable givers is that you can only deduct your gifts if you itemize your deductions. An estimated two-thirds of taxpayers take the standard deduction rather than itemizing, and for them, charitable giving doesn't result in a bigger refund.
If you do itemize, though, you'll want to make sure you collect all the information you need to claim your deduction on Schedule A. If you only make monetary gifts, the requirements are pretty simple: Keep a copy of your canceled check along with the acknowledgment letter the charity should send you.
Accounting for Non-Cash Donations
Other types of donations are more complicated. For instance, many people give away clothes, and several charitable organizations solicit gifts of used cars.
- With clothes and similar items, the key to taking a deduction is making a fair estimate of what your gift is worth. You cannot deduct the full amount you originally paid -- only the current value of the gift is deductible. The better the records you keep, the easier it is to make your case if the IRS audits you.
- For vehicles, the requirements have gotten more complicated. Most charities don't actually use donated vehicles or pass them on to the needy directly -- they sell them at auction for cash. In those cases, your deduction is limited to what the charity receives when it sells the vehicle -- even if its Blue Book value is higher.
- Another vehicle-related item that many people forget about is mileage. If you drive your car for charitable purposes, you can deduct $0.14 per mile.
If a charity gives you something back for your donation, it can cut the tax-deductible value of your deduction. Except in the case of low-cost items like mugs, you have to reduce your deduction by the value of what you received.
Don't let these requirements stop you from getting the deduction you deserve. What you save could help you make an even bigger charitable gift this year.
More on saving on taxes:
- The Tax Break That Millions Miss Out On
- Why Your State Thinks You're a Tax Cheater
- Get Ready to Pay Thousands of Dollars More in Taxes
Motley Fool contributor Dan Caplinger is happy to have the IRS subsidize his charitable giving. You can follow him on Twitter here.